Ground Breakers: Rough times for base metals ‘unlikely to last long’ with recovery predicted
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Base metals have been really struggling recently with weak Chinese demand and the tightening of monetary policy picking up across the globe as government bankers look to keep a lid on inflation.
But ANZ’s commodity strategists Daniel Hynes and Soni Kumari say downward pressure is unlikely to last long, predicting fiscal stimulus and eventual disruption to Russian metal supplies from the war in Ukraine will come to a head to tighten up markets like copper, nickel and aluminium in the second half of 2022.
“China is loosening fiscal and monetary policies with a CNY4trn infrastructure campaign. The government has also relaxed regulations on the housing market and lowered interest rates for first home buyers. More importantly, the NDRC released the country’s latest energy system plan, which re-emphasised China’s determination to boost the development of renewable energy, which are key growth engines for metals demand,” they said in a note.
“Labour shortages and high energy costs will continue to weigh on growth in copper, aluminium and nickel supply.
“This is aside from the disruption that the Russia-Ukraine war will eventually have on Russian metals supplies.
“For the moment, sentiment is likely to remain weak. However, the prospect of a rebound in demand in China, amid falling inventories, is unlikely to keep downward pressure on metals prices for long.”
Base metals have been poor performers this month after a range of metals rose to decade long highs including copper, zinc, nickel and aluminium.
But all were in very positive territory last night, with copper up 2% to US$9416/t, nickel rising 7.9% to US$28,231/t, zinc up 2.6% to US$3714.50/t and aluminium up 1.7% to US$2907/t.
Whether they have bottomed out and are heading back up remains to be seen, as more virus cases in China could hammer sentiment very quickly, with Shanghai replaced by Beijing as the country’s new pressure point.
Longer term Hynes and Kumari think base metals will be beneficiaries of renewable energy and electricity infrastructure growth as the world moves to decarbonise power supplies.
“Amid the ongoing energy crisis due to Russia’s invasion of Ukraine, efforts to become self-reliant are accelerating in Europe and other regions,” they said.
“This along with skyrocketing fossil fuel prices should see renewable investments pick up in both the near and long-term. And more renewable investment should be supportive for industrial metals demand.
“Copper content in installed wind turbines is 2.5–3t/MW. Increasing sales of electronic vehicles (EV) is another demand source that bodes well for base metals demand, as many countries are planning to phase out internal combustion engines (ICE) vehicles by 2035.
“An EV contains four times more copper than an ICE vehicle, and nickel is required for batteries.”
On top of that they say “idiosyncratic supply risks” are hitting copper due to the rising risk of operating in Chile and Peru, the world’s two largest copper producing nations, where social unrest and opposition to mining operations are growing.
Boom explorer Chalice Mining (ASX:CHN) has been in a well-documented funk this year despite high prices for the commodities at its world class Julimar discovery near Perth like palladium, copper and nickel.
Its boss Alex Dorsch has largely attributed that to a delay getting access to drill high quality targets in the Julimar State Forest.
To many analysts and the company itself, those targets look even better on first glance than Gonneville, the deposit the company found on private farmland at the bottom end of the 26km long Julimar intrusive complex.
Late yesterday the ASX 200 listed explorer said it had now received its final outstanding approvals to conduct “low impact exploration drilling” at the Hartog and Dampier targets, which it says will not involve mechanised clearing of vegetation.
The company, which has faced appeals from local environmental groups, says it will use small track mounted diamond drill rigs to navigate around trees and will maximise its use of already cleared areas to minimise disturbance.
A total of 70 drill sites will be tested across 10km of on the Julimar complex, where a major discovery could pose a serious conundrum for the pro-business WA State Government around balancing its support of mining with its conservation aims.
$2.25 billion capped Chalice saw its shares climb ~10% this morning.